PROFITABILITY RATIOS
Return on sales – also called as net profit rate, net profit margin, measures profit percentage per peso
sales
Gross profit rate – measures gross profit percentage on sales to recover operating expenses
Return on total assets – measures overall asset profitability, indicates how well assets have been
employed by management
Return on shareholder’s equity – measures percentage of profit derived for every peso of owner’s
equity
Return on ordinary shareholder’s equity – measures % of profit derived for every peso of ordinary equity
money used when compared to the return on total assets, it measures to the extent to which financial
leverage is working for or against ordinary shareholders
Operating leverage – measures the # of times profit will increase or decrease in relation to change in net
sales
Times preferred dividends earned – measures the adequacy of current earnings to meet preferred
dividends payments
LIQUIDITY RATIOS
Operating turnover – measures the speed of the business cycle, the number of days cash was invested in
the normal business operations
Inventory turnover – indicates the number of times inventories were acquired and sold during the
period
Inventory days – indicates the length of time spent before the average inventory is sold to customers,
the number of days is 365 in a year, 360 days is used for ease in computation
Receivable turnover – indicates the efficiency in credit and collection policies, trade receivables include
open account and on notes
Collection period – measures quickness in collecting trade receivables
Payable turnover – m effectiveness in using trade credit facility from suppliers
Payable days – indicates the # of days spent before paying liabilities to merchandise suppliers
Materials turnover – indicates the # of times materials were used during the period
Work-in-process turnover -